China’s export of rare earth magnets to the United States dropped 58.5% year on year to 246 metric tons in April, when trade tensions due to export controls were at their highest. China supplies 92% of the refined rare earth elements that are used in the production of electronics, electric vehicles, and defense systems, enabling it to control the market. It applied export controls for rare earths when President Trump issued 145% tariffs, now reduced to 30%, that require companies to obtain regulatory approvals from Chinese authorities before shipping these minerals abroad.
Following talks between Chinese and U.S. officials in Geneva, Switzerland, on May 10 and 11, China was expected to lift controls on the exports of seven critical minerals that were imposed on April 4. But China has yet to lift the restrictions, and the Trump administration has accused China of failing to fulfill its commitment made in Geneva.
A U.S.-Chinese delegation met again on June 9 and 10 in London, after China’s President Xi and President Trump talked by phone. According to Commerce Secretary Howard Lutnick, progress was made in getting China to relax export controls on rare earth minerals. Later, a major Chinese rare earths magnet producer said it had received approval to begin some exports, including to the United States. In return, some of the retaliatory trade measures that the United States had imposed on China would be dialed back “in a balanced way.” When Xi and Trump approve of the agreement, the deal will be implemented.
President Trump may invoke emergency powers and slash some legal requirements under the Defense Production Act, including some congressional funding approvals, to increase U.S. production of critical minerals and high-tech weapons. While efforts to improve the supply chains of these elements outside of China are underway, it will take additional time. It will not alleviate the immediate shortage of elements needed for automotive components. Diplomats, carmakers, and executives from India, Japan, and Europe are seeking meetings with Chinese officials to expedite approvals for rare earth magnet exports.
Automakers are having to find ways to work around the cutback in rare earth magnets, such as using older technology that is more costly and less efficient, moving some parts manufacturing to China, removing certain special features that need magnets such as adjustable seats and high-end speaker systems, looking for alternative sources for magnets in Europe and Asia, and/or halting production. Ford already stopped production of the Explorer at its Chicago plant for a week in May because of the rare-earth shortage. Moving production to China to get around the export controls on rare-earth magnets could work because the restrictions only cover magnets, not finished parts. But that outcome of the tariff war is not what President Trump wants, as he intends to bring more manufacturing back to the United States.
Background
In April, China began requiring companies to apply for permission to export magnets made with rare-earth metals, including dysprosium and terbium. The country controls approximately 90% of the world’s supply of these elements, which enable magnets to operate at high temperatures. As the Wall Street Journal explains, “Much of the world’s modern technology, from smartphones to F-35 jet fighters, rely on these magnets.” Rare-earth elements enable electric vehicle (EV) motors to function at high speeds and are also used in other applications, such as windshield wipers and headlights. China controls almost all of the refining capability that transforms raw minerals into usable forms and has superior technical knowledge in separating rare earth from surrounding rocks.
While China was supposed to have eased export controls on rare-earth magnets as part of a 90-day tariff truce agreement with the United States, the country has instead slowed down license approvals for magnets. Trump accused China of violating the deal. China disagrees, alleging “discriminatory and restrictive measures” by the Trump administration, including restricting exports of artificial intelligence chips and revoking visas for Chinese students.
The lack of magnets hurts the manufacturing of electric and hybrid vehicles more than conventional cars and trucks because the former contains far more rare-earth magnets than a gasoline-powered car. Auto companies must produce electric vehicles to comply with federal fuel-economy standards, which could result in fines if they fail to meet the standards. Regulatory credits that automakers can purchase from EV manufacturers, such as Tesla, to offset their emissions are sold out through 2027. President Trump is working on revising the efficiency standards established by the Biden administration, which require 67% of new car and light-duty truck sales to be electric by 2032.
Conclusion
China imposed export controls on rare-earth elements, which were expected to be withdrawn with the 90-day pause on the 145% tariffs initially imposed by President Trump. China dominates the supply chain of refined rare earths, controlling 90% of the market. The lack of rare-earth magnets is causing havoc for the automobile industry, as all cars made today, whether electric or gasoline-powered, require rare-earth magnets. Rare-earth magnet exports to the United States dropped 58.5% in April. Automakers are having to find ways to work around the cutback, such as using older technology that is more costly and less efficient, moving some parts manufacturing to China, removing certain special features that need magnets such as adjustable seats and high-end speaker systems, looking for alternative sources in Europe and Asia, and/or halting production.
